Euro 1 Billion (with the usual caveats)

The European Council (at the level of ministers rather than Heads of State) has finally endorsed a macro-financial package for Ukraine following the European Parliament approval.

The full agreement can be found here. or can be downloaded at the bottom of the Council’s website statement.

“A further €1 billion in loans will cover Ukraine’s financing needs over a period of two and a half years. The loans will support economic stabilisation and a programme of structural reforms, supplementing resources provided by the IMF and other donors.

The IMF has identified a $4.5 billion financing gap for 2018 and 2019, going over and above funding committed so far by the international community.

Macro-financial assistance is an exceptional form of financial aid that the EU extends to partner countries with balance-of-payments difficulties. This is the third operation for Ukraine since 2014. The EU additionally provides assistance under its neighbourhood policy.

The EU pledged €1.6 billion of macro-financial assistance in 2014 and €1.8 billion in 2015, of which Ukraine received €2.81 billion. A €600 million installment was cancelled in January 2018 due to incomplete compliance with the conditions set.”

With the loans due during and from 2019 clearly upon the fiscal horizon, notwithstanding whatever the national budget deficit will ultimately prove to be, this financial assistance, much like the required IMF lending, is necessary.

The usual caveats apply however, and those caveats are very similar to those of the IMF – except somewhat less explicit.  “The further disbursements will be conditional on Ukraine respecting democratic mechanisms and the rule of law, and guaranteeing respect for human rights. They will be subject to economic policy and financial conditions, focusing on structural reforms and sound public finances and including a time frame for their fulfillment. The conditions will be laid down in a memorandum of understanding between Ukraine and the Commission.

The Commission will be responsible for disbursing the macro-economic assistance. The Commission and the European External Action Service will monitor the fulfillment of the conditions.”

There is some wiggle room for the EU and the European Council within those words, albeit the EU will expect much the same from Ukraine as the IMF – or much needed funds for 2019 will be absent.

Both IMF and the EU have already withheld funds for failures by Ukraine to meet its negotiated obligations.  “Parliament, Council and Commission agreed a joint statement in the light of unfulfilled conditions and the cancellation of the third installment of the previous programme.

Further macro-financial assistance will be conditional on progress in the prevention of corruption, as well as on the progress of the IMF programme, the statement reads. The memorandum of understanding will include obligations to strengthen governance, administrative capabilities and the institutional set-up for preventing corruption.

Upon each disbursement, the Commission will report publicly on the fulfillment of the conditions, in particular those concerning the prevention of corruption.”

It now remains for the European Parliament and the Council (without further discussion) to adopt the decision – a foregone conclusion.  It also remains for Ukraine to meet its negotiated obligations – which is not a foregone conclusion.

As predicted in January 2018, the anti-corruption court legislation will pass and will become law as close to the summer political holiday as possible.  A deliberately long and drawn out process will then follow to insure that there is no fully functioning anti-corruption court before the March 2019 presidential elections and certainly insuring no chance of allowing any verdicts prior to the Verkhovna Rada elections of October 2019.  (To allow parliamentary immunity and impunity be first provided to the next political actors.)  The timetable was transparent from the get-go.

Thus as the timeline is following the blog’s January predictions and there is no reason to expect that to deviate significantly.

Whatever the case, hopefully the anti-corruption court will inspire more confidence than the “judicial reform” has thus far achieved – for that “reform” is hardly worthy of the dictionary definition.  Nevertheless hope is the last human emotion to leave the human soul, so hope is directed toward the anti-corruption court legislation being if not very good, then at least not bad.

Aside from the anti-corruption court becoming a reality and (eventually) functioning, no doubt the EU will have requirements regarding AML legislation and ratification of certain AML regional instruments too.  There will also be a legislative desire for an “end beneficiary” register.

Therefore, as such legislation will not be popular among the legislators, oligarchs, and organised criminality (if and when they can be separated) that legislation too will only reach the top of the parliamentary agenda just in time for urgent macro-financial assistance to be released – and not before.  (Late November, early December – perhaps even January although the serious electioneering and mud-slinging will have begun for the March presidential elections and perhaps some parliamentary bets will be off during that period.)

Nevertheless despite such prickly (and necessary) legislation ahead, President Poroshenko stated “I welcome today’s decision of the EU Council, which opens the way for the launch of a new macro-financial assistance program for Ukraine, which we agreed with the EU leaders at the end of last year. This is an important signal from the EU member states to assess progress on reform and devotion to further support of Ukraine.”

He is also perhaps hoping that it will open the door to better commercial borrowing conditions, alleviating the reliance upon the IMF and EU (among others) – for that comes without “the usual caveats”.